Nobel Prize Winning Economist Joseph Stiglitz: “Austerity Policy Is Ineffective”

 

Nobel Prize Winning economist and Professor at Columbia University Joseph Stiglitz criticizes the anti-crisis policy of the European leaders, in an interview with the German newspaper Suddeutsche Zeitung.

He points out that “an overdose of austerity makes everything worse,” while he stresses that the “haircut” of the Greek debt is not sufficient, proposing an increase and not reduction of state spending in crisis periods.

In his interview with the German newspaper, the American economist puts himself against the austerity policy adopted in many European countries, because – as he explains – “democratic governments can withstand cuts only up to a certain point.”

He also adds that “nowhere in the world can we find an example where salary, pension and social expenditure cuts resulted in the sanitization of a weak country,” underlining the need to implement a development policy. Stiglitz regards the restructure of a debt as the unique solution to escape the crisis.

Unfortunately the “haircut” of the Greek debt is too limited and that is due to the fear of a possible default.

But a default should not cause such panic, he suggests, as “it belongs to the modern capitalism” and it should “be permitted.” He called for more loans in businesses by the European Investment Bank.

The famed economist suggests that financial transactions are subject to taxation and he also proposes the formation of a common financial organization for the Eurozone, which would be able to grant additional capital to countries in need.

“I speak about the so called ‘transfer union,’ which is extremely unpopular among the Germans,” he explains, expressing an obvious optimism for a “big future” of the EU, despite the fact that the austerity policy can provoke a new recession at any time.